Financial markets rally on Fed's strategy, Dow surges up 200 points

The stock market staged a huge rally after investors got the aggressive economic help they wanted from the Federal Reserve. The Dow Jones industrial average is finishing up more than 200 points.

The gain pushed the Dow to 13,540, its highest level since December 2007, the start of the Great Recession. The Standard & Poor's 500 index is finishing up 23 points at 1,460. The Nasdaq composite ends the day up 42 at 3,156.

The Fed says it will spend $40 billion a month to purchase mortgage securities because the economy is too weak to reduce high unemployment. It has also extended its pledge of super-low interest rates into 2015.

There were nearly four stocks rising for every one falling. Volume was high, 4.5 billion shares.

“It was a very powerful statement,” Kevin Caron, a market strategist at Stifel Nicolaus & Co. in Florham Park, said in a telephone interview. The firm oversees about $127 billion. “The Fed is going all in here, especially with their commitment to continue asset purchases until they see the desired result in the form of a lower unemployment rate. This statement removes a lot of uncertainty about the Fed’s commitment to maintaining price stability.”

The Fed said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month as it seeks to boost growth and reduce unemployment. The Federal Open Market Committee said it will continue its purchases of mortgage-backed securities and undertake other asset purchases if the outlook for the labor market doesn’t improve substantially.

“What the market didn’t expect was having this labor market kicker,” John Canally, an economist and investment strategist at LPL Financial Corp. in Boston, said in a telephone interview. The firm oversees about $350 billion. “The Fed said if the labor market doesn’t improve, the committee will continue.” He said, “That was a little bit of a bolder step than the market would have thought and what is adding to the risk-on trade here.”